IT & ITeS
JANUARY 2016
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1
IT & ITeS
Executive Summary………………..……..…..3
Advantage India…………………………..........4
Market Overview and Trends………..…........6
Porters Five Forces Analysis………….........17
Strategies Adopted ………………..…..…....19
Growth Drivers………………………….........21
Opportunities... …..........................................33
Success Stories………………………..…….39
Useful Information…………...........................49
JANUARY 2016
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2
IT & ITeS EXECUTIVE SUMMARY Strong growth opportunities
•
The IT-BPM sector in India expanded at a CAGR of 15 per cent over 2010–15, which is 3– 4 times higher than the global IT-BPM growth, and is estimated to expand at a CAGR of 9.5 per cent to USD300 billion by 2020
•
India is the world’s largest sourcing destination, accounting for approximately 55 per cent of the USD146 billion market. The country’s cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be its USP in the global sourcing market
•
India’s highly qualified talent pool of technical graduates is one of the largest in the world, facilitating its emergence as a preferred destination for outsourcing, computer science/information technology accounts for the biggest chunk of India' fresh engineering talent pool, with more than 98 per cent of the colleges offering this stream
•
The sector ranks fourth in India’s total FDI share and accounts for approximately 37 per cent of total Private Equity and Venture investments in the country
• • •
In 2015, revenues of Indian IT-BPM market reached USD146.5 billion Indian IT companies have helped clients to save USD200 billion in the last five years 640 offshore development centres for 78 countries
Leading sourcing destination
Largest pool of ready to hire talent
Most lucrative sector for investments
Cash Cow
Source: NASSCOM, TechSci Research Notes: BPM – Business Process Management, USP – Unique Selling Proposition
JANUARY 2016
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3
IT & ITeS
ADVANTAGE INDIA JANUARY 2016
IT & ITeS ADVANTAGE INDIA
•
Industry value: USD146.5 billion
Global footprints
Growing Growing demand demand
2015
•
•
Strong growth in demand for exports from new verticals Rapidly growing urban infrastructure has fostered several IT centres in the country Expanding economy to propel growth in local demand
Competitive advantage • •
•
•
•
•
IT firms in India have delivery centres across the world; as of 2015, IT firms had a total of 640 centres in >78 countries India’s IT industry amounts to 12.3 per cent of the global market, largely due to exports IT & ITeS industry is well diversified across verticals such as BFSI, telecom and retail
Advantage India
Cost savings of 60–70 per cent over source countries A preferred destination for IT & ITeS in the world; continues to be a leader in the global sourcing industry with 55 per cent market share The Indian IT industry has saved clients USD200 Billion in the past five years
• •
• • • • •
2020F Industry value: USD300 billion
Policy support
The engineering sector to is the IT sector Tax holidays extended delicensed; 100 per cent FDI is More liberal allowed in thesystem sector for raising global capital, funding for seed capital & growth, and ease of doing business, etc. there have was been addressed Due to policy support, USD0.17 have been cumulative billion FDI of USD14.0 billionallocated for raising start2000 ups – into theglobal sectorcapital, over April Income on up royalty February Tax 2012, cut making 8.6 perfee on tech services to 10 per cent cent of total FDI into the country in that period FDI inflow in computer software & Cumulative hardware is USD18,170.24 million from April 2000 to September 2015
Source: Nasscom, TechSci Research Notes: SEZ stands for Special Economic Zone, BFSI stands for Banking, Financial Services and Insurance, E stands for Estimate, F stands for Forecast
JANUARY 2016
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IT & ITeS
MARKET OVERVIEW AND TRENDS JANUARY 2016
IT & ITeS EVOLUTION OF INDIA’S IT SECTOR 2005-15 2000–05
1995-2000 • Firms in India became multinational • The number of firms in
Pre-1995
• IT industry started to
• By early 90s, US-
based companies began to outsource work on low-cost and skilled talent pool in India
JANUARY 2016
mature • Increased investment in R&D and infrastructure started • India increasingly seen as a product development destination
India grew in size and started offering complex services such as product management and goto market strategies • Western firms set up a number of captives in India
• •
•
•
companies with delivery centres across the globe (640 centres in >78 countries, as of 2015) Indian IT-BPM revenue is USD146.5 billion in FY15 The IT sector is expected to employ about 3.5 million people directly and around 10 million indirectly, as of FY15 India’s IT sector is at an inflection point, moving from enterprise servicing to enterprise solutions In FY14, the launch of 10,000 start ups programmes has already touched over 25,000 entrepreneurs
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IT & ITeS SEGMENTS OF INDIA’S IT SECTOR IT & ITeS sector
IT services
• •
•
Market Size: USD68 billion during FY15 Over 80.88 per cent of revenue comes from the export market BFSI continues to be the major vertical of the IT sector
Business Process Management (BPM)
• •
•
Market size: USD27 billion during FY15 Around 85.19 per cent of revenue comes from the export market Largest segment with 3.5 million jobs
Software products and engineering services
• •
Market size: USD24 billion during FY15 Over 83.33 per cent of revenue comes from exports
Hardware
•
•
•
Market size: USD13.5 billion during FY15 The domestic market accounts for a significant share The domestic market is experiencing growth as the penetration of personal computers is rising in India
Source: Nasscom, TechSci Research
JANUARY 2016
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8
IT & ITeS INDIA’S IT MARKET SIZE GROWING; TCS THE MARKET LEADER India’s technology and BPM sector (including hardware) has generated revenues of USD146.5 billion during FY15 compared to USD118 billion in FY14, implying a growth rate of 23.72 per cent
Market size of IT industry in India (USD billion)
The contribution of the IT sector to India’s GDP rose to approximately 9.5 per cent in FY15 from 1.2 per cent in FY98
FY11
FY12
FY13
FY14
Domestic
55-57
32
FY10
48
32
86
32
50
76
69
29
The top six firms contribute around 36 per cent to the total industry revenue, indicating the market is fairly competitive
59
24
TCS is the market leader, accounting for about 10.1 per cent of India’s total IT & ITeS sector revenue
110-112 98.5
FY15
FY16E
Export Source: Nasscom, TechSci Research Note: E - Estimates
JANUARY 2016
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9
IT & ITeS IT AND BPM ACCOUNT FOR 79.7 PER CENT OF INDIA’S IT & ITES EXPORTS Total exports from the IT-BPM sector (including hardware) were estimated to have been USD98.5 billion during FY15; exports rose at a CAGR of 13 per cent during FY08–15 despite weak global economic growth scenario Export of IT services has been the major contributor, accounting for 56.35 per cent of total IT exports (including hardware) during FY15 BPM accounted for 23.35 per cent of total IT exports during FY15
Growth in export revenue (USD billion)
Sector-wise breakup of export revenue FY15
20.30%
IT services
CAGR 14.14% 20.0 14.0 13.0 8.8 9.9
10.0 11.7
20.0
56.35%
15.9
43.9
52.0
55.5
FY13
FY14
FY15
25.8
25.8
33.5
FY09
FY10
FY11
FY12
BPM
BPM
23.0
11.4 14.1
39.9
IT services
14.1 17.8
23.35%
Software Products and Engg. Services
Software Products and Engg. Services Source: Nasscom, Make in India, TechSci Research
JANUARY 2016
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IT & ITeS BFSI - A KEY BUSINESS VERTICAL FOR IT-BPM INDUSTRY BFSI is a key business vertical for the IT-BPM industry. It generated export revenue of around USD35.26 billion during FY14, accounting for 41.0 per cent of total IT-BPM exports from India Approximately 85 per cent of total IT-BPM exports from India is across four sectors: BFSI, telecom, manufacturing and retail. The hitherto smaller sectors are expected to grow With introduction of new policies for healthcare and retail, these sectors are expected to grow at a faster pace in coming years, thus accelerating revenue of IT enabled services for the sectors
Distribution of export revenue across verticals (FY14)
Export revenue growth across verticals (USD billion)
21.5
Emerging*
16 25% BFSI
13.76 12
Manufacturing
41%
15.48 14
Telecom
Telecom Manufacturing Emerging*
16% 35.26
BFSI 31 0
10
20 2014
30
18% 40
2013
Source: MoRTH, TechSci Research, Department of Electronics and IT Annual Report Notes: BFSI - Banking, Financial Services and Insurance, *Emerging- Retail, Utilities & Construction, Retail, Healthcare, Services, Transportation The figures mentioned are for IT and BPM only and do not include engineering services and hardware exports
JANUARY 2016
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11
IT & ITeS WITH OVER 62 PER CENT SHARE, US IS MAJOR IMPORTER OF IT SERVICES US has traditionally been the biggest importer of Indian IT exports; over 62 per cent of Indian IT-BPM exports were absorbed by the US during FY15 Non US-UK countries accounted for just 21.0 per cent of total Indian IT-BPM exports during FY15 Europe, one of the fast growing IT markets in 2015, is expected to emerge as a potential market as higher inclination towards offshoring firms would increase demand for IT services Being the low cost exporter of IT services, India is going to attract more markets in other regions in the same manner it tapped US markets
Geographic breakup of export revenue (USD billion) (FY15)
Distribution of export revenue across geographies (FY15) 2%
61 52
8% US
42
11% UK 12
US
15 17
UK
11 8 10
Europe (Excl. UK) 2012
2014
7
5
17%
8 2
APAC
2 RoW
2
62%
Europe (Excl. UK) APAC RoW
2015 Source: Nasscom, TechSci Research, Department of Electronics and IT Annual Report Note: ROW is Rest Of the World, APAC is Asia Pacific
JANUARY 2016
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12
IT & ITeS IT-BPM SECTOR DOMINATED BY LARGE PLAYERS
Category
Number of players
Percentage of total export revenue
Percentage of total employees
Work focus • Fully integrated players offering complete range
Large
11
47-50%
~35-38%
of services • Large scale operations and infrastructure • Presence in over 60 countries • Mid tier Indian and MNC firms offering services
in multiple verticals Medium
120-150
32-35%
~28-30%
• Dedicated captive centres • Near shore and offshore presence in more than
30-35 countries • Players offering niche IT-BPM services
Emerging
~1,0001,200
9-10%
~15-20%
• Dedicated captives offering niche services • Expanding
focus 500/1,000 firms
towards
sub
Fortune
• Small players focussing on specific niches in
Small
~15,000
9-10%
~15-18%
either services or verticals • Includes Indian providers and small niche
captives
Source: Nasscom, TechSci Research
JANUARY 2016
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13
IT & ITeS NOTABLE TRENDS IN INDIA’S IT & ITES SECTOR … (1/3) •
Global delivery model
Indian software product industry is expected to reach the mark of USD100 billion by 2025. The number of global delivery centres of IT firms in India reached 580, spreading out across 75 countries, as of 2014 • New business models, technologies and addition of new markets is pushing growth; Infosys has opened a shop in Shanghai; TCS already has a big set-up in Uruguay
•
Global sourcing hub
India continues to maintain a leading position in the global sourcing market. Its market share increased to 55 per cent in 2015 . India’s IT industry amounts to 7 per cent of the global market
•
Engineering offshoring
Most lucrative sector for investments
In 2014, India was the most preferred location for Engineering offshoring*, as per a customer poll Companies are now offshoring complete product responsibility • The sector includes 640 Offshore Development Centres (ODCs) of 78 countries
•
Increased focus on R&D by IT firms in India resulted in rising number of patents filed by them. In 2015 Indian IT-BPM sector is expected to grow 13 per cent since last year and reach USD146 billion
*- conducted by Booz and Co
JANUARY 2016
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14
IT & ITeS NOTABLE TRENDS IN INDIA’S IT & ITES SECTOR … (2/3) India’s IT market is experiencing a significant shift from a few large-size deals to multiple small-size ones • The number of start-ups in technology is expected to reach 50,000, adding to around 2 per cent of GDP • Delivery models are being altered, as the business is moving to capital expenditure (capex) based models from operational expenditure (opex), from a vendor’s frame of reference •
Changing business dynamics
•
Large players gaining advantage
Large players with a wide range of capabilities are gaining ground as they move from being simple maintenance providers to full service players, offering infrastructure, system integration and consulting services • Of the total revenue, about 80 per cent is contributed by 200 large and medium players •
New technologies
Disruptive technologies, such as cloud computing, social media and data analytics, are offering new avenues of growth across verticals for IT companies • The SMAC (social, mobility, analytics, cloud) market is expected to grow to USD225 billion by 2020 India’s IT sector is gradually moving from linear models (rising headcount to increase revenue) to non-linear ones • In line with this, IT companies in India are focusing on new models such as platform-based BPM services and creation of intellectual property •
Growth in non-linear models
JANUARY 2016
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IT & ITeS NOTABLE TRENDS IN INDIA’S IT & ITES SECTOR … (3/3) •
Consumerisation of IT
Global outsourcing is being used to drive fundamental re-engineering of end-to-end processes • Increased emphasis on beyond cost benefits • IT firms in the current phase have moved up the value chain, providing innovation-led growth to clients from SLA satisfaction and RoI calculations •
Emergence of Tier II cities
SMAC technologies, an inflection point for Indian IT
Rural Development
Tier II and III cities are increasingly gaining traction among IT companies, aiming to establish business in India • Cheap labour, affordable real estate, favourable government regulations, tax breaks and SEZ schemes facilitating their emergence as a new IT destination • Giving rise to the domestic hub and spoke model, with Tier I cities acting as hubs and Tier II, III and IV as network of spokes
•
Social, Mobility, Analytics and Cloud (SMAC), a paradigm shift in IT-BPM approaches experienced until now, is leading to digitisation of the entire business model
•
The National Optical Fibre Network (NOFN) is being laid down in phases to connect all the 250,000 gram panchayats in the country
Notes: SLA - Service Level Agreement; RoI - Return on Investment
JANUARY 2016
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IT & ITeS
PORTER FIVE FORCES ANALYSIS JANUARY 2016
IT & ITeS PORTERS FIVE FORCES ANALYSIS Competitive Rivalry •
Intense competitive rivalry exists due to low switching costs
•
Most of the bigger Indian firms offer same services and there is little product differentiation
Threat of New Entrants • •
Easy entry as the capital required is low Large players, however, toughen prospects of small and medium players to win large deals
Bargaining Power of Suppliers •
•
Bargaining power of suppliers is less as most of their businesses come from the same geographies Price taker rather than price maker
JANUARY 2016
Threat of New Entrants (Medium)
Substitute Products •
Threat is medium as new centres, such as Philippines and China, are fast gaining ground among investors due to their low cost advantages
Bargaining Power of Customers (High)
Competitive Rivalry (High)
Substitute Products (Medium)
Bargaining Power of Customers •
•
Bargaining power is high as many IT firms fight for a similar project Firms are mostly dependent on same geography, which increases customer power
Bargaining Power of Suppliers (Low)
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IT & ITeS
STRATEGIES ADOPTED JANUARY 2016
IT & ITeS STRATEGIES ADOPTED
Expanding in Tier II & III cities and externally
Movement to SMAC & digital space
Product and Pricing differentiation
•
Companies are expanding their business to Tier II & III cities to have low cost advantage
•
Infosys expanded to Indore and Mohali in FY14 to increase its penetration across India.
•
Companies are expanding their business towards emerging economies of East Europe and Latin American countries
•
Social Computing, Mobility, Analytics and Cloud (SMAC) is taking significant leaps
•
Companies are getting into this field by offering big data services, which provides clients better insights for future cases
•
Most of the IT companies have been offering similar products and services to their clients
•
The companies are working towards product differentiation through various other services by branding themselves, e.g. Building Tomorrow's Enterprise by Infosys
•
Indian IT firms have started to adopt pricing strategies to compete with Global firms like IBM and Accenture
•
Companies are now investing a lot in R&D and training employees to create an efficient workforce, enhancing productivity and quality
•
R&D forms a significant portion of companies’ expenses, which is critical when margins are in pressure, to promote innovations in the changing landscape
•
Knowledge services, data analytics, legal services, Business Process as a Service (BPaaS), cloud-based services
Promotion of R&D
Fast-growing sectors within the BPM domain
JANUARY 2016
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IT & ITeS
GROWTH DRIVERS JANUARY 2016
IT & ITeS IT SECTOR TO BE DRIVEN BY STRONG DEMAND AND INDIAN EXPERTISE
•
Global BPM spending estimated to rise by 4.4% and reach USD2.7 billion in 2015
•
Global IT services spending is expected to have declined by at around 5.5 per cent during 2015 and reached USD3.5 trillion
•
5.8 million graduates are estimated to have been added to India’s talent pool in FY15, 1.5 million form ready to hire pool.
•
Strong mix of young and experienced professionals
Talent pool
Global demand
Domestic growth
•
Computer penetration expected to increase
•
Increasing adoption of technology and telecom by consumers and focused government initiatives leading to increased ICT adoption
•
Robust IT infrastructure across various cities in India such as Bengaluru
•
Technology mission for services in villages and schools, training in IT skills and E-Kranti for government service delivery and governance scheme
Growth drivers •
Tax holidays for STPI and SEZs
•
More liberal system for raising capital, seed money and ease of doing business.
•
A fund of around USD16.5 million to promote new technology start-ups in the 2015-16 Budget
Policy support
Infrastructure
Source: Nasscom, TechSci Research Notes: STPI stands for Software Technology Park of India, SEZ stands for Special Economic Zone, ICT - Information and communications technology
JANUARY 2016
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22
IT & ITeS TECHNOLOGY – A KEY INFLUENCER FOR DOMESTIC IT SERVICES … (1/2) Indian IT companies like TCS, TechMahindra Limited, Mphasis, HCL Technologies Limited, Larsen & Tourbo Infotech Limited, Wipro Technologies Limited, Oracle Financial, Infosys Technologies Limited are expanding their footprint in order to meet client’s requirements globally
IT Sector Segmental Breakup - By Companies (FY15)
Indian Service Providers (TCS, Infosys, Wipro, HCL, etc)
14.0%
Indian Firms have started adopting the global delivery model to cater to the local market and for taking advantage of low cost
Global inhouse centers (EMC, Fordm Boeing, Honeywell, etc)
18.0%
68.0% Multinational Corporations (IBM, Accenture, HP, Microsoft, etc)
Source: Nasscom, Assorted News Articles, TechSci Research
JANUARY 2016
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23
IT & ITeS TECHNOLOGY – A KEY INFLUENCER FOR DOMESTIC IT SERVICES … (2/2) Introduction of large e-Governance projects to provide better services through IT and focus on the formation of the cyber policy led to higher demand for IT and hardware from the government The Central Government and State/UT Government allocated 0.9–1.2 per cent and 2.8–3 per cent, respectively, of total budget for IT spend under the 12th Five Year Plan
Domestic revenue from IT and BPM (USD billion)
100
48.0
55-57
Strong consumer demand for IT service and products: Advent of smartphones, tablets and iPads FY15
Industry leaders are stressing promoting support start-ups
the
need
for
FY16E
FY20F
Source: Nasscom, TechSci Research Notes: UT - Union Territory, E:Estimated F - Forecasts
Rising computer literate population Enhanced internet and mobile penetration Growing disposable income strengthening consumer purchasing power
Emerging verticals (retail, healthcare, utilities) are driving growth above 14 per cent
JANUARY 2016
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24
IT & ITeS EXPORTS TO REMAIN ROBUST AS GLOBAL IT INDUSTRY MAINTAINS GROWTH Export revenue from IT and BPM (USD billion)
In 2015 the revenue from exports of IT and BPM sector was USD98 billion. Global IT-BPM spending has grown 4.6 per cent over 2013 to nearly USD2.3 trillion India’s IT industry amounts to 4.26 per cent of the global market, largely due to exports as of 2015. In the year 2015 India comprised of around 500 BPM players generating a revenue of USD23 billion, which is expected to rise and reach 50 billion in 2020 Emergence of SMAC would provide USD1 trillion market by 2020 Emerging economies are likely to be a major contributor to IT spend growth
76.0
FY13
Stable tax regime, reducing litigation related to tax and providing conducive environment for start-ups will improve the business environment
JANUARY 2016
FY15
FY16E
Core and non core segment’s growth prospects 17%
IT spend in emerging economies to grow 3-4 times faster than advanced economies The BRIC IT market is estimated at USD380–420 billion by 2020
110-112
98.5
Core segments
Emerging segments
10%
20%
20%
19%
2
22 35
11 15
CADM
ER&D IT consulting
1.2
7.6 13
FY13E
3.2
5.5
21%
3.1
5.5
ISKnowledge Software sourcing services testing FY16F
Source: Nasscom, TechSci Research, Budget 2015-16 Notes: UT- Union Territory, E - Estimated
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25
IT & ITeS INDIAN TALENT POOL READY TO TAKE IT SECTOR TO THE NEXT LEVEL … (1/2) Availability of skilled English speaking workforce has been a major reason behind India’s emergence as a global outsourcing hub
Graduates addition to talent pool in India (in millions)
5.8 5.3
During FY08-15, no of graduates addition to talent pool in India grew at a CAGR of 9.4 per cent 3.7
4.0
4.4
4.7
India added around 5.8 million graduates to the talent pool during FY15 Growing talent pool of India has the ability to drive the R&D and innovation business in the IT-BPM space FY2010
Fy2011
FY2012
FY2013
FY2014
FY2015
Source: Nasscom, TechSci Research Note: Graduates includes both graduates and post graduates
JANUARY 2016
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26
IT & ITeS INDIAN TALENT POOL READY TO TAKE IT SECTOR TO THE NEXT LEVEL … (2/2) Training expenditure by Indian IT-BPO sector, 2014 About 2 per cent of the industry revenue is spent on training employees in the IT-BPM sector Recruitment cost
USD1.6 billion is spent annually on training workforce and growing R&D spend
6.00% 11.00%
Salaries for inhouse training staff 27.00%
Forty per cent of total spend on training is spent on training new employees
Employee welfare 13.00% External training (existing employees) Other costs
Numerous firms have forged alliances with leading education institutions to train employees 19.00%
24.00%
External training (new recruits)
Source: TechSci Research
JANUARY 2016
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27
IT & ITeS NASSCOM’S PLAN TO INCREASE EMPLOYABILITY OF INDIA’S TALENT POOL Objectives
Initiatives
•
Short term
Enhance overall yield of employees • Improve employability • Expand to Tier II cities to reduce operating costs • Low skill dependence
•
Industry to enhance investment in training • Use NAC and NAC – Tech to assess employability of talent pool • Identified new tier II locations
• •
Medium term
Long term
Reduce investment on training • Develop specialist and project management expertise • Develop a robust and credible information repository
•
Expand education capacity • Promote reforms in education
Launched the National Faculty Development Programme to increase suitability of faculty • Aiding industry access to specialist programmes offered by independent agencies • NASSCOM, in partnership with the industry, has developed a unique initiative ’National Skills Registry’ a national database of registered and verified knowledge workers in the industry •
Expansion of higher education infrastructure; 20 new IIITs to be set up by the government • Programme to increase PhDs in technology
Source: Nasscom, TechSci Research Notes: NAC – Nasscom Assessment of Competence, IIIT - Indian Institutes of Information Technology
JANUARY 2016
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28
IT & ITeS SEZ’S TO DRIVE IT SECTOR; TIER II CITIES EMERGE AS NEW CENTERS … (1/2) In FY15, STPI operational units were spread across 53 locations, 46 are in Tier II and III cities As of FY2014, 3,676 STPI units were operational, while 3,335 units have exported IT services and products
Characteristics of STPI and SEZ in India
STPI
Parameters Term
IT-SEZs have been initiated with an aim to create zones that lead to infrastructural development, exports and employment
•
10 years
•
Fiscal benefits
100 per cent tax holiday on export profits • Exemption from excise duties and customs •
Location and size restrictions
No location constraints • 23 per cent STPI units in tier II and III cities
SEZ •
15 years
•
100 per cent tax holiday on exports for first five years • Exemption from excise duties and customs •
Restricted to prescribed zones with a minimum area of 25 acres
Source: Nasscom, TechSci Research, STPI (Software Technology Parks of India)
JANUARY 2016
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29
IT & ITeS SEZ’S TO DRIVE IT SECTOR; TIER II CITIES EMERGE AS NEW CENTERS … (2/2) Trends in tier II and III cities
IT sector employment distribution in Tier I and Tier II/III cities
As of 2013, 43 new tier II/III cities are emerging as IT delivery locations; this could reduce pressure on leading locations Cost in newer cities is expected to be 28 per cent lower than that in leading cities Lower cost and attrition, affordable real estate and support from local government, such as tax breaks, STPI and SEZ schemes, are facilitating this shift of focus Over 50 cities already have basic infrastructure and human resource to support the global sourcing and business services industry Some cities are expected to emerge as regional hubs supporting domestic companies
JANUARY 2016
3,230 175
1,821
1,615
2008
2018
Tier I locations
Tier II/III locations
Source: Nasscom, E&Y, TechSci Research
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30
IT & ITeS TREMENDOUS GROWTH OF GLOBAL IN–HOUSE CENTRES Number of GIC’s in India
Key highlights
1025
Global In-House Centres (GIC), also known as captive centres, are one of the major growth drivers of the IT-BPM sector in India. They also operate in engineering services and software product development. In 2015, there were more than 1025 GICs operating out of India, across multiple locations accounting for USD19.4 billion of export revenues, almost 20 per cent of the industry export revenues, and employing >25 per cent of the total manpower The impact of the segment goes beyond revenue and employment, as it helped in developing India as a R&D hub and create an innovation ecosystem in the country
710
760
790
825
2012
2013
2014
460
180
2000
2005
2010
2015
Source: Zinnov, Nasscom, TechSci Research
Within the captive landscape, Engineering Research & Development/Software Product Development (ER&D/SPD) is the largest sub-segment Companies from North America and Europe are major investors in the captive segment in India, accounting for over 90 per cent of captives in the country
JANUARY 2016
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31
IT & ITeS IMPRESSIVE GROWTH PROSPECTS SUSTAIN PE AND VC INTEREST The IT & BPM sector continued to attract PE and VC investments in 2015, accounting for a significant proportion with 235 deals in the year FY15 Total P/E investments were USD9 billion in FY15, with the biggest deal being AZB & Partners investment of USD2197.05 million. Total P/E investments were USD9 billion in FY15
PE-VC investments in IT & BPM (USD billion)
Share of IT-BPM in PE-VC investments
262
9.00
235
161
5.00
137 104
3.20 2.20
1.90 0.80 2008
2011
2012
2013
2014
2015
38.38
40.9
40.76
FY11
FY12
FY13
Number of Deals
50.38
53
FY14
FY15
Share of IT-BPM
Source: Venture Intelligence, Nasscom, TechSci Research
JANUARY 2016
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32
IT & ITeS
OPPORTUNITIES JANUARY 2016
IT & ITeS NEWER GEOGRAPHIES AND VERTICALS PROVIDE HUGE OPPORTUNITIES • BRIC
nations, continental Europe, Canada and Japan have IT spending of approximately USD380–420 billion
• Adoption
of technology and outsourcing is expected to make Asia the second largest IT market
• SMBs have IT spend of approximately
USD230–250 billion, but contribute just 25 per cent to India’s IT revenue • The
emergence of new service offerings and business models would aid in tapping market profitably and efficiently
New geographies
New customer segments
New verticals
• Government, healthcare, media and
utilities together have IT spend of approximately USD190 billion, but account just 8 per cent of India’s IT revenue • Non-linear growth due to platforms,
products and automation • Emerging verticals (retail, healthcare,
utilities) are driving growth
Source: All the figures are taken from International Data Corporation (IDC) and Nasscom and are FY10 estimates Note: SMB - Small and Medium Businesses
JANUARY 2016
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34
IT & ITeS EXPANSION OF FOCUS AREA TO AID FUTURE GROWTH … (1/4) Traditional verticals, i.e. BFSI, telecommunication and manufacturing, continue to remain the largest in terms of IT adoption and are expected to grow at an average of 15 per cent Implementation of cloud environment and mobility is the way forward for traditional verticals Emphasis on other emerging verticals (e.g. education, healthcare and retail) to aid growth in IT firms in India Shift from IT adoption infrastructure, automation and digitisation to smart IT marks future trend of services in emerging verticals Other untapped sectors like Education and utilities has a huge potential for IT & ITes to grow into
Indian IT-BPM (Domestic and Export) Revenues (2015)
IT-BPM Exports Revenue (USD Billion)
110-112 99
55.0 Domestic
86 76
Exports
23.0
0.5
20.0
13.0 FY13
FY14
FY15
FY16E
IT services
4.0
4.0
BPM
Packaged software, ER&D and product development
13.0
14.0
Hardware
eCommerce
Source: Nasscom, TechSci Research Note: E – Estimated
JANUARY 2016
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35
IT & ITeS EXPANSION OF FOCUS AREA TO AID FUTURE GROWTH … (2/4) As IT is increasingly gaining traction in SMB’s business activities, the sector offers impressive growth opportunities and is estimated at approximately USD230–250 billion by 2020 Govt. sectors have a huge potential for IT enabled services, as IT penetration is low in the sector. Increasing digitalisation will lead to growth in revenues for IT sector in coming years
Market size of other progressing verticals by 2020 (USD billion)
Media
Utilities
Healthcare
Technologies, such as telemedicine, health, remote monitoring solutions and clinical information systems, would continue to boost demand for IT service across the globe IT sophistication in the utilities segment and the need for standardisation of the process are expected to drive demand Digitisation of content and increased connectivity is leading to a rise in IT adoption by media
Government
SMB
17
25
58
90
250
Source: Nasscom, TechSci Research Note: Small and Medium Business
Companies to focus on local problems and find engineering solutions
JANUARY 2016
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36
IT & ITeS EXPANSION OF FOCUS AREA TO AID FUTURE GROWTH … (3/4) Emerging technologies present an entire new gamut of opportunities for IT firms in India
Growing technologies future growth 60%
SMAC provide USD1 trillion opportunity Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around USD650–700 billion by 2020
Big data/analytics*
50%
Social Media 40% Cloud
Social media is the second most lucrative segment for IT firms, offering a USD250 billion market opportunity by 2020
30%
20%
Enterprise mobility
10% 0
200
400
600
800
Source: Nasscom, TechSci Research Note: Size of bubble indicates market size, *CAGR and market size for Big data/analytics is till 2015
JANUARY 2016
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37
IT & ITeS EXPANSION OF FOCUS AREA TO AID FUTURE GROWTH … (4/4) Emerging geographies would drive the next growth phase for IT firms in India BRIC would provide USD380–420 billion opportunity by 2020 Focus on building local credible presence, high degree of domain expertise at competitive costs and attaining operational excellence hold key to success in new geographies Emphasis on export of IT services to current importers of other products and services
Countries offering growth potential to IT firms IT spend
India’s penetration
Key segments
Canada
USD63 billion
~1.5 per cent
Enterprise applications, cyber security, healthcare IT
Europe
USD230 billion
